Czech Election Winner Starts Cabinet Talks as Revolt Ends

Czech Social Democratic Chairman Bohuslav Sobotka said he’d like to see a new government by year-end. Photographer: Matej Divizna/Getty Images

Nov. 11 (Bloomberg) -- Czech Social Democrat leader
Bohuslav Sobotka began talks on forming a government after
defeating a party uprising sparked by a disappointing election
win that had stalled the negotiations for two weeks.

Sobotka had the initial meeting yesterday with billionaire
Andrej Babis’s ANO party, the runner-up in last month’s
parliamentary vote, after the Social Democrats’ central
executive committee nominated him for prime minister at a
meeting in Prague, the two parties said in a statement. Sobotka
will meet with the Christian Democrats tomorrow.

The move ended a gridlock that’s ensued after the Oct.
25-26 ballot and delayed forming the ex-communist country’s
ninth cabinet since 2002, more than any other European Union
nation. After voters elected a record seven parties to
parliament, the Social Democrats need partners to undo the
previous cabinet’s austerity drive by raising state spending and
taxes.

“The Social Democrats are now genuinely prepared to
negotiate,” Sobotka said. “We’ll strive to push through as
much of our agenda as possible during talks on forming the
government.”

Sobotka came under pressure from some party leaders after
the Social Democrats won the election with a record-low tally.
He refused to quit, calling the attempt for his dismissal a
“coup.” Deputy Chairman Michal Hasek and the head of the
party’s parliamentary caucus Jeronym Tejc, who were among those
demanding Sobotka be replaced, resigned Nov. 8.

Zeman’s Choice

President Milos Zeman, who has the right to pick the prime
minister and name the cabinet, will meet Sobotka for initial
talks on Nov. 13, the head of state said on Radio Impuls today.

While “it would be quite reasonable” to ask the Social
Democrat leader next week to try and form a government, Zeman
said he won’t be able to name a new prime minister before he
recovers from a knee injury and returns to office in early
December.

While the three parties in coalition talks would have 111
votes, giving them a majority in the 200-seat parliament, they
need to agree on areas where they can work together to make
cooperation feasible, Sobotka said yesterday.

Tax Clash

ANO has said it will stick to its campaign promise not to
increase taxes, putting it at odds with the Social Democrats,
who campaigned on higher levies for top earners and businesses
to boost state coffers and help re-ignite economic growth. ANO
and the Christian Democrats said Nov. 8 in a joint statement
that they could form a three-party coalition with the Social
Democrats, “tolerate” a minority cabinet put together by the
election winners or go into opposition.

The fragmented legislature is compounding a history of
political instability that’s brought 12 governments since Czech
independence 20 years ago. Investors have ignored the political
track record as the economy doubled in size from 2003 to $196
billion, according to World Bank data.

The yield on the country’s 10-year government debt has
averaged 3.8 percent over the past decade, compared with 5.6
percent for Poland and 3.5 percent for higher-rated France.